Inflation has become less of a threat to consumers. Just check the slide in gasoline prices and other items in the FOX Business Shopping Cart. And some investors say that makes this the perfect time to buy protection against higher prices.

One way they’re doing it is by investing in TIPS, or Treasury Inflation-Protected Securities.

“TIPS are like insurance. You don’t want to buy them after the flood,” advises Scott Burns from Morningstar.

The securities have been issued by the Treasury Department since 1997 and are backed by the U.S. government.

Here’s how they work: TIPS are indexed against the Labor Department’s consumer price index for all urban consumers (CPI-U). When that inflation gauge rises, the coupon payments of TIPS and the underlying principal automatically increase.

TIPS are issued in terms of 5, 10, and 20 years, and are offered in multiples of $100. The price and interest rate of TIPS are determined at auction. The rate is then reset every six months.

TIPS are typically less volatile than Treasuries, which have near-record-low yields that can be eroded by inflation.

Morningstar’s Burns says the recent rally in Treasuries has mispriced them, making TIPS the “hands-down” choice as a risk-free alternative.

The downside to TIPS: The principal of the bonds and the coupons fall when prices decline. The benchmark CPI-U has declined for four straight months, stoking investor concern about deflation, a period of falling consumer prices.

There is a safety net on the principal, however. If you buy individual TIPS from TreasuryDirect.gov or a broker and hold until maturity, then you are paid the adjusted principal or original principal, whichever is greater. There is no guarantee on the coupon rate.

Chris Parr, a financial planner in Columbia, Md, says TIPS are presently cheap. Parr, a principal with Financial Advantage, says the securities should be a permanent core holding in a portfolio, even though near-term returns may be modest because of falling prices.

That’s because he thinks inflation will return, thanks to the government’s current bailouts plus expected stimulus plans from President-elect Obama and the new Congress.

“I expect inflation to eventually become more of a longer-term threat given the recent, and ongoing government spending binge in an attempt to avert the credit crisis and rescue the economy.”

Parr advises investors to put TIPS in tax-deferred accounts such as retirement plans and IRAs. Taxable accounts must pay annually for interest payments and any increases in principal even though it has not yet been paid out.

Parr prefers to buy individual TIPS for his clients to control duration. For taxable accounts, he uses the Vanguard Inflation-Protected Securities fund (VIPSX).

Another popular vehicle is the iShares Barclays TIPS Bond Fund. The Exchange Traded Fund sports a catchy ticker (TIP), trades like a stock, and captures a variety of short-term and longer-dated securities.

Burns, director of ETF Research at Morningstar, likes the ETF because of its flexibility, low costs, and the ability to buy TIPS even if the bond market is closed.

The TIP ETF has not paid a dividend since October and may not for several months (iShares says TIP never pays a January distribution), so Burns says investors relying on bond income may want to avoid TIPS for now.

As for concerns about deflation, Burns thinks those fears are overblown. “In the first couple quarters of recession there is deflation, if the government prints money we’re back in inflation,” he says.

“It’s like 1974 right now, we’re rolling out of this. Every time the economy tries to get off the deck, commodity prices will shoot up. Inflation is the most pain-free way out of this mess. A little inflation will help people out -- except for those who own debt that’s not protected from inflation.”